US Univ. Of Michigan Sentiment Dec F: 70.6 (est 70.4; prev 70.4) - UofM consumer sentiment improves slightly but remains depressed, inflation expectations tick down - Neil's Summary

US Univ. Of Michigan Sentiment Dec F: 70.6 (est 70.4; prev 70.4)  

- Conditions: 74.2 (prev 74.6)  

- Expectations: 68.3 (prev 67.8)  

- 1-Year Inflation: 4.8% (est 4.9%; prev 4.9%)  

- 5-10 Year Inflation: 2.9% (prev 3.0%)

Surveys of Consumers (umich.edu)

The University of Michigan's final read for December consumer sentiment came in pretty much in line with the initial read, which improved a bit from November's levels (which had represented a 10-year low), but very modestly.   The overall index improved to 70.6 from 70.4 on the initial read up from 67.4 in November (but still down from 71.7 in October).  It was above expectations which were for no change.  It was 74.6 a year ago.  

Future expectations, which "cratered" from 79 to 65 in August, remained subdued at 67.9 in October, fell to 63.5 in November and improved to 67.8 in the initial read improved another half point to 68.3.  Current conditions, though, which fell from 84.5 to 78.5 in August, remained around those levels in September and October (77.7), fell further to 73.6 in November, and improved marginally to 74.6 in the initial read fell back to 74.2 in the final read.  So consumer sentiment remains very depressed according to this survey. These compare with 74.6 and 90.0 a year ago.  

In terms of inflation, while there were no changes in the initial read, the final read did see a softening of year ahead inflation to 4.8% from 4.9%, which had been the highest read since 2008.  5-10 year inflation expectations also fell by a tenth from 3.0% to 2.9%.  As a reminder the Conference Board's consumer confidence survey yesterday also found inflation expectations falling a little.  

The report continued to show a sharp divide along partisan lines as noted by Chief Economist Richard Curtin in his comments.  He also again noted the increase in expectations from lower income groups.    

Surveys of Consumers chief economist, Richard Curtin

The Sentiment Index improved in December. The uptick was primarily due to significant gains among households with incomes in the bottom third of the distribution. Indeed, the bottom third expected their incomes to rise during the year ahead by 2.8%, up from 1.8% last December, and the highest level since 2.9% was recorded in 1999. There have only been five times in the past half century that income expectations among low income households have exceeded the December 2021 level. The announced increase in Social Security payments of 5.9% in 2022 was partly responsible for the gain, and 5.0% increases in expected wage among the youngest workers. Importantly, too few interviews were conducted to capture the impact of the rapid spread of the Omicron variant in the U.S. Confidence and spending are likely to be depressed in January, but it is too early to know the eventual impact of Omicron on the economy.

Consumers' evaluations of their current finances remained unchanged at lower levels due to the erosion of their living standards from rising inflation. One-in-four households specifically cited the negative impact of inflation on their living standards. The partisan nature of consumer expectations has overwhelmed other economic correlates. Democrats anticipate much lower inflation rates than Republicans for the year ahead (3.0% vs. 6.8%) and over the longer term (2.3% vs. 4.4%). Moreover, three times as many Republicans as Democrats cited the negative impact on their finances from inflation (47% vs. 16%). Sharp differences in expected gains in nominal incomes were also found by partisanship, as Democrats anticipated much higher gains than Republicans (2.7% vs. 0.4%). Independents, who are least likely to be influenced by partisanship, equaled the median expected income response across partisan subgroups. This finding has been widely replicated across many other expectations, and indicates that partisan extremes generally offset and the sum is approximately equal the views of Independents.

In lieu of a featured chart, Mr. Curtin penned a holiday poem.  You can find it here.

featured-chart.xlsx (umich.edu)

To see more content, including summaries of most major U.S. economic reports and my morning and nightly updates go to https://seekingalpha.com/user/15085872/instablogs for more recent or https://sethiassociates.blogspot.com for the full history.